Tuesday, May 09, 2017

Olduvai on the Dnepr

I have been in the collapse prediction business for over a decade now, with relatively good results overall. One aspect of predicting collapses that remains troublesome is their timing. The reason why it is troublesome is well understood: collapse is a sort of phase transition, and phase transitions are notoriously difficult to time with any precision. It is also nearly impossible to establish what has triggered any one of them. When will a raindrop of supercooled water suddenly turn into a snowflake? Only the snowflake knows. What triggered the collapse of the USSR? If you too have an opinion on the matter, please stuff it. Thank you.

Another aspect of my method that could be improved is its lack of quantitative rigor. I have been able to make a great number of fairly accurate qualitative predictions, all of them based on reasoning by analogy. For example, after observing the collapse of the USSR and its immediate aftermath, then imagining, using thought experiments, how it would map onto the collapse of the USA, I was able to formulate something I called Superpower Collapse Soup. Its key ingredients are: a severe shortfall in the production of crude oil, a large, systemic trade deficit, an oversized, bloated military budget, an outsized military incapable of victory, crippling levels of runaway debt and an entrenched, systemically corrupt political elite incapable of reform. During the decade since I came up with it, the events I have predicted have been unfolding with some precision. The USA has been steadily losing its economic and military dominance; it can no longer get its way in the world diplomatically; the last straw will be the loss of its financial stranglehold over the global economy.

It is fun and instructive to watch superpowers jostling for position and eventually collapsing, but that is just a backdrop to a far more important phenomenon that is starting to unfold with increasing speed: the waning of the industrial age. Here is another analogy: the idea that ten years from now most of the currently industrialized world will be clearly, obviously far along on the path toward deindustrialization seems just as outlandish now as the idea that the USA would rapidly lose its position as the world’s one remaining superpower seemed a decade ago when I first broached the subject.

But there is also an important difference: industrial activity is far more easily quantifiable than such matters as political and military dominance. In particular, Richard Duncan’s Olduvai theory provides a good guide to the upcoming events. Its longer name is “the transient-pulse theory of industrial civilization.” Its main idea is that the industrial age will span roughly a hundred-year period, from 1930 to 2030, with a peak somewhere near the middle. His prediction is that by 2030 industrial activity will decrease to 1930 levels.
The specific metric he decided to track is per capita energy use. His theory has come under some criticism in recent years because of two factors. First, instead of decreasing, in recent decades per capita energy use has in fact increased modestly. Second, various technological advances, including the ability to move information in the form of electronic signals rather than bulkier carriers such as paper, has led to improved efficiencies and has made it possible to increase the level of industrial activity given the same level of per capita energy use.

This criticism falls short on both counts. First, sustained and even slightly increased levels of per capita energy use have been enabled by constantly increasing debt that has temporarily compensated for the rising costs of energy production. The overall effect of this has been to depress both energy consumption and economic growth. Energy prices are low because that is all the consumers can afford and energy produces are forced to borrow to make up the difference between their production costs and their earnings. When economic growth stops and goes into reverse (what the French call décroissance) the debt burden becomes unsupportable, energy companies go out of business and per capita energy use drops precipitously. Thus, the phenomenon that has allowed per capita energy use to set some modest new records has produced an Olduvai plateau, which will be followed by an even steeper Olduvai cliff once this scheme, essentially one of attempting to borrow against the collateral of a nonexistent future, eventually fails. This moment is not far away: as I write this, the energy business has largely stopped being profitable, and there is a growing wave of energy companies entering bankruptcy.

On the second count, it is important to understand the key ingredient behind all of the modern technological efficiency gains. Yes, we have gained the ability to communicate electronically instead of moving pieces of paper about. We now have global supply networks and just-in-time delivery systems that have made it possible to largely eliminate the costs of maintaining local inventory. We have automated, robotic manufacturing and process control systems that have made industrial production far more efficient in the use of both materials and energy. But what is behind all of these advances? It is the availability of the electric grid; none of them would be possible without universal access to reliable sources of electricity. And it is precisely the demise of the electric grid that Richard Duncan saw as the signal event that will indicate the end of the industrial age.

When the trick of borrowing from a nonexistent future in order to maintain a high level of per capita energy use finally fails (as it is already showing signs of doing) energy availability will drop, electric grids will fail, and all of the technology-driven efficiency gains will be wiped out—all at the same time. Richard Duncan is not the only engineer to fail to predict the important function that the exponential increase in debt has played in extending the industrial age by a decade or two—while making its end even more abrupt. Engineers like to work with physical quantities, and are loathe to admit that something that is essentially a game played with numbers on pieces of paper—which is what debt is—nevertheless can act as a physical motive force by forcing people to act. Its most dramatic physical manifestation is in depleting nonrenewable natural resources more rapidly and more fully. Once again, the overall effect is to reduce the ability to accurately predict the timing of collapse; as far as predicting the final result, I believe that the predictions of Olduvai theory still stand.

Although all around us we can still observe a hectic pace of industrial activity—highways choked with traffic, lights on everywhere, container ships and supertankers pulling into ports on schedule—there are places in the world that are already in the grip of terminal industrial collapse. To see that this is happening, all we have to do is look at what’s happening a bit more carefully.